The connection between Soft Power and FDI attractiveness
In this article, I’ll explore the UK’s performance and high ranking in the recently published Global Soft Power Index 2024. I aim to explore how the UK's soft power strengths contribute to its appeal as an FDI destination, whilst examining key themes and similarities with our own overseas’ investment report which we published last year.
What is Soft Power?
Soft power refers to a country's ability to influence and attract others through non-coercive means such as culture, values, policies, and diplomacy. Coined by Joseph Nye, soft power encompasses a nation's ability to shape the preferences and behaviour of other countries by appealing to their shared values, cultural attractiveness, and the legitimacy of its policies and institutions.
It is crucial for a country's brand profile and its ability to attract investment. A positive reputation, cultural appeal, political stability, and effective diplomacy enhance a country's soft power. It allows countries to shape their image, build influential networks, and establish a favourable environment for economic cooperation, ultimately driving investment and contributing to long-term economic growth.
The authors of the report, Brand Finance plc, measure soft power via eight pillars which include ‘culture & heritage’, ‘business & trade’ and ‘governance’. In the latest edition, the UK is ranked in 2nd place with a Global Soft Power Index score of 71.8, improving on 67.3 in the previous year.
The United Kingdom's consistent high ranking not only reflects its international reputation but also plays a significant role in attracting foreign direct investment (FDI). Here's why:
Stable Economy, But Some Red Flags
According to Brand Finance, one of the crucial factors contributing to the United Kingdom's Soft Power is its economy. Compared to last year's ranking of 12th, the UK now secures the 7th position in the attribute of a 'strong and stable economy'.
Brand Finance has for the past 20 years produced a table which ranks Nation Brand Value. Although the UK is placed in the top 5, the report highlights the difficulties that it has faced. Similar to other top 10 countries of China, Germany, Japan, France, Italy, and South Korea, the UK’s economy has a ‘low growth climate’ and in the case of the UK, saw the value of its brand fall by 15%.
A stable economy requires a stable government, and the upcoming general election in the UK adds an intriguing element to the country's Soft Power dynamics. Like the United States, the election results will have implications for the nation's reputation and global perception. The outcome of the election will not only shape the domestic political landscape but also influence how the UK is perceived internationally. It will be interesting to observe how the election results impact the UK's Soft Power, including its ability to attract foreign investment.
Educational Excellence
Although the economic picture depicted by the report is mixed, the UK clearly dominates when it comes to its 'strong educational system'. The report highlights the UK’s renowned universities and educational institutions, which attract students from around the world. This educational excellence creates a talent pool of highly skilled individuals, making the UK an attractive location for businesses seeking a skilled workforce.
The presence of skilled workers is a crucial factor for companies considering FDI. The availability of a highly educated workforce enhances the UK's competitiveness and ensures that businesses have access to the necessary expertise and innovation.
In our FDI report, ‘local skills’ was one of the three areas that we analysed in terms of identifying the most attractive places in the UK for outside investment. Inner London, which was ranked as number one as the most attractive location in the UK for FDI, was boosted by scoring 96.9 out of 100 in this category.
Strong Reputation
The UK achieves an all-time high of 4th rank in ‘Reputation’ in the Global Soft Power Index. A positive reputation makes the UK an appealing investment destination as it signifies stability, reliability, and trustworthiness. Investors are more likely to have confidence in a country with a strong reputation, leading to increased FDI inflows. The UK's reputation for stability is particularly attractive to investors seeking long-term returns and a low-risk environment.
Communication and Media
The UK's ascent to the top in attributes like 'easy to communicate with' and 'trustworthy media' also enhances its soft power and attractiveness for FDI. Effective communication channels and a trustworthy media environment facilitate business operations and foster transparency, both of which are crucial considerations for investors. Clear and efficient communication ensures that businesses can easily engage with stakeholders, collaborate with partners, and access relevant information. Trustworthy media outlets provide accurate and reliable information, reducing uncertainty and building investor confidence.
Summary
The United Kingdom's soft power strengths, demonstrated through its high ranking in the Global Soft Power Index, create a positive image and reputation that directly influence its attractiveness for FDI. A strong reputation, excellent education system, adherence to the rule of law, and effective communication channels all contribute to making the UK an appealing destination for foreign investors seeking stability, a skilled workforce, legal certainty, and transparent business environments.
As the UK prepares for a general election, the soft power rankings will be crucial in shaping international perceptions and potentially impacting FDI inflows. The UK's continued focus on maintaining its soft power advantages will be key in sustaining its attractiveness for foreign investment.
How we can help
Irwin Mitchell recently published a new report about foreign direct investment into the UK which looks at which countries are investing the most in the UK, which sectors are most attractive, and where the UK hotspots are currently. Download the report here
